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Developing software in an open source way follows a long tradition of user-generated innovation.

For while “open source” literally refers to the fact that the source code for a piece of software is made available to all-comers, the phrase has come to signify the combination of a way of working (development by a distributed team of lead users on a voluntary basis) and an approach to copyright – making the resultant intellectual property free to all, provided they feed their modifications into the group.

This tradition is strong within the electronics industry: ham radios, WiFi networks, applications that run on the internet, indeed personal computers themselves, are all examples.

But it also has flourished without: Sonali Shah, an assistant professor at the University of Illinois, has charted user-created designs for windsurfers and other sports gear in the 20th century while a 1983 paper by Robert Allen discusses the development of blast furnace technology by the English iron industry more than 200 years ago.

In some instances lead users become manufacturers, commercialising their peer group’s innovations, as is the case with Mr Shah’s example of surfers in Hawaii, while traditional manufacturers have adopted practices that mimic the behaviour of users.

But they most often operate separately from the user community, though some have been savvy enough to build upon user innovation.

Lars Bo Jeppesen, assistant professor at Copenhagen Business School, has been studying new business models emerging in the video games industry where companies such as Valve, the developer of the game Half-Life, have decided to embrace the energy being generated by users who build their own “mods”, or variations. Consumers are attracted to the game because of the hundreds of mods, yet none can play them without first buying the original version.

Other companies have recruited lead users for help with product development. Eric Von Hippel, professor and head of the innovation and entrepreneurship group at the MIT Sloan School of Management, studied what happened when 3M worked in this way.

He found that the resulting products tended to be brand new ideas for products, whereas those generated internally in the traditional way tend to be improvements on well-known needs. He explains that working with lead users is a cheap way to unearth the multiplicity of needs we have as consumers, needs that a normal design team does not have the scope to predict.

Some companies have built up business models around user innovation – for instance LSI Logic has built a business upon giving people tools to design their own semiconductors and then building them for them. The trend for user-generated content, whether it is reality TV or blogs, is another instance of this phenomenon.

Yet Josh Lerner and Jean Tirole, professors at the Harvard Business School and the University of Toulouse respectively, argue in The Economics of Technology Sharing: Open Source and Beyond that user development can only be taken so far.

It is easy, for example, for the computer programmer to test the integrity of a software application as the only tool required is his or her computer, whereas testing drugs requires an expensive and extensive infrastructure.

But open source software is also about collaboration across company, region and rank, and companies have picked up on this method, perhaps in direct imitation.

This idea of “communities of practice” has been implemented by Schlumberger which allows employees with similar interests to get together in “Eureka” communities regardless of department or rank.

But what of the move to share intellectual property that also characterises open source? Has this been embraced by the business world?